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Wednesday, June 19, 2013

Europe's Leaders Have No Clue ... Government Mandated "Redistribution" Has Made Europe Weak ... Americans Take Heed

Europe is in recession and has been for a considerable period of time now. The future doesn't look bright either. More of the same, in other words.

So what do the politicians and pundits want do do?

Have more government spending, aka "stimulus." However, that's been tried for several decades now and has failed completely. Heavy government spending is exactly the wrong prescription for what ails Europe (us too) and will only prolong the agony of the citizenry.

What Europe needs instead, as does the U.S., is less government spending and more individual economic freedom and personal responsibility. To keep beating the government spending drum is to keep the economies of Europe from expanding. And economic expansion is the only sustainable way out of the financial mess they're made for themselves.

Here's the truth. Higher government spending equals higher taxation, which may be in the form of (1) increased taxes today, (2) increased borrowing today (leading to necessary interest and principal repayments in the future), (3) a weaker currency today as a result of more money being printed --- or some combination of all three "taxes."

In the end, one dollar of new government spending will always require at least one additional dollar in required taxes.

And higher taxes cause a reduction in economic growth unless those taxes are the result of increased economic growth. So the choice for society is to emphasize either redistribution which causes weak economic growth or market led economic growth by private sector entrepreneurs. In that regard, Europe chose the road to redistribution long ago.

Europe's Social Contract, Lying in Pieces should be a cautionary lesson for all Americans, including the "progressives" and redistributionists among us. That said, the real solutions aren't the ones prescribed in the following editorial. In fact, more government "stimulus" will lead to even weaker economic performance. But let's look at what the article says, even though it's wrong:

Europe’s Social Contract, Lying in Pieces

A homeless woman in Athens. With millions in Greece and the rest of Europe facing long-term poverty, fringe movements are rising.

What began as a debt and currency crisis in the European Union risks becoming a crisis of liberal democracy itself. Four years of grinding austerity across much of the Continent has caused millions of middle- and working-class voters to lose faith in the ability of mainstream political parties to protect their basic interests. It would be a sad paradox if the European movement, conceived in the ruins of fascism and two world wars, and for decades democracy’s best advertisement to the Communist East, undermined its democratic achievements in pursuit of a perverse economic dogma.

With few exceptions, Europe’s mainstream center-left parties, which long positioned themselves as defenders of society’s most vulnerable, are taking it in the teeth politically. The Democrats in Italy, the Socialists in France and Spain, and the Greek socialist party known as Pasok, having committed to many more years of cuts in social spending, are increasingly out of touch with the desperate situation of young people without job prospects, homeowners unable to keep up with their bills, and older workers facing long-term unemployment, later retirement ages and pension cutbacks.

The victims are visible almost anywhere you go in Mediterranean Europe. You see shuttered groceries and clothing shops, abandoned restaurants, idled factories and half-built housing developments overgrown with weeds. Newspapers carry heartbreaking stories of families evicted from modest apartments, people losing their jobs and then their health benefits, young and not-so-young women turning to prostitution to make ends meet, even suicides by self-immolation.

Most people in Greece, Portugal and Spain personally know someone whose former middle-class life has been destroyed by the combined effects of recession and government austerity policies. In the midst of this destruction, many mainstream politicians still prefer to pretend that this is just a normal business-cycle downturn that will pass.

The European Union’s recent offer to let Spain, France and five other hard-pressed nations extend their budget-cutting deadlines is not nearly enough. These countries need to stimulate their economies, not merely slow down their economic contraction. . . .

Perhaps it is not surprising that millions of disillusioned supporters of centrist parties now cast protest votes for populist fringe movements that echo popular anger even though they offer few practical policy alternatives. Movements as diverse as Greece’s neo-fascist Golden Dawn, Italy’s anarchist Five Star Movement, France’s anti-Arab National Front and Britain’s Europhobic United Kingdom Independence Party have little in common ideologically. Their one shared feature is that they have little respect for the liberal democratic values that have defined and shaped postwar Europe. And growing electoral support is turning them into powerful players. . . .

After World War II, Socialist and Christian Democratic parties jointly fashioned safety net programs that reduced poverty, enhanced living standards, reduced inequality and made European social policy the envy of much of the developed world. That social contract now appears to be shredded."

Summing UpEurope has run out of time, and its socialistic economy has become uncompetitive in the world. The sad truth is that Europe's "social contract now appears to be shredded" because its redistributionist programs and policies have over time run its economy into the ground. As a result, Europe is now unable to manage its affairs in a fiscally sound manner while creating economic growth and private sector jobs. The fat lady is singing while its economy continues to shrink.

Europe's lessons for us are many, and the fixes are possible, but they're not the ones generally offered by the Europeans, either government officials, pundits or the electorate. As a result, they're likely headed toward economic oblivion and irrelevancy in the world, even though they don't yet know what they've done to themselves. It's not a pretty picture.

When economies contract over time and more government spending is always the prescribed 'medicine' used to fix those ailing economies, more long term weakness occurs. A vicious downward cycle is the inevitable result.

So after more than six decades of the post World War II grand social-democratic experiment, Europe has run out of time. Since something can't go on forever, it won't.

But the culture apparently won't allow serious and permanent change from a government run to an individual self reliant economic model based on private sector led risk taking initiatives, innovation and entrepreneurialism.

Thus, Europe is failing right before our eyes. I only wish our politicians and fellow citizens would take heed while there's still plenty of time to do so.